The economic impact of high fuel costs for shippers is significant. In 2004, the fuel bill for the U.S. trucking industry (collectively referred to as “carriers”) was greater than $90 billion. In the immediately preceding year, 2003, the fuel bill for carriers was $76 billion. See Transport Topics, Jun. 17, 2005 print edition, “Trucking Fuel Tab Soars,” (Transport Topics Publishing Group, Alexandria, Va.). That is a one-year cost increase of greater than 18%. The trend going forward is no less startling, as shown by FIG. 1. FIG. 1 is graph depicting U.S. retail “on-highway” diesel fuel prices from September 2003 to January 2006 (statistics compiled by the U.S Department of Energy). The long-term trend is clearly pointing in the direction of ever-increasing fuel prices. With continuing political instability in oil-producing countries (such as Nigeria, Venezuela, Iran, and Saudi Arabia), continuing military operations in Iraq, and political opposition to drilling in known reserves on U.S. soil (such as in the Artic National Wildlife Refuge), fuel prices are likely to continue their meteoric rise.
Political instability in oil-producing regions and hurricanes impacting U.S. ports on the Gulf of Mexico also contribute mightily to short-term volatility in fuel prices. As shown in FIG. 1, hurricane Katrina (which made land fall on the gulf coast of the United States on Aug. 29, 2005) caused an immediate and severe spike in fuel prices at the pump. Managing such price volatility (to the extent possible) is key for the efficient movement of goods to market. In short, bottom line profit margin for shippers (i.e., the margin of companies moving their goods to market, as opposed to the profit margin of the trucking companies themselves) is inversely proportional, dollar-for-dollar, to shipping costs. In an efficient marketplace, the actual cost of shipping should be closely related to fuel costs. In other words, every dollar saved on fuel costs should be a dollar that goes to the bottom line of the shipper (not the carrier). However, that is not the current situation.
In the United States, common freight carriers (companies such Federal Express, UPS, DHL, etc.), truckload segment carriers (companies such as Schneider, Swift, J. B. Hunt, etc.) and a huge number of other local, regional, national, and international carriers) manage the fluctuating cost of fuel by assessing a “fuel surcharge.” Airlines (both passenger and cargo lines) likewise assess fuel surcharges. The surcharge is based upon a formula that uses the average retail cost of fuel (the average cost of diesel for ground carriers; the average cost of jet fuel for air carriers) for a preceding period of time and multiplies it by a sliding scale to arrive at a fuel surcharge that is added to actual cost to ship the goods from the origin to the destination. (The scale can be based on, for example, a percentage of the fuel cost, or per mile traveled, etc.) As a general rule, every surcharge protocol currently in use is based on the average, full retail price of fuel. But the carriers' actual cost for fuel is significantly less because the carriers receive volume discounts for large fuel purchases. Thus, at the time the cost for a shipment is estimated, the carrier provides the estimate based upon the current actual cost, plus the current fuel surcharge. The surcharge functions to inflate the cost of fuel, thereby guaranteeing the carrier a profit (or, at an absolute minimum, preventing the carrier a loss). In essence, by using a sliding scale based on historical and average fuel costs, the surcharge increases the carriers' revenue, based upon the actual amount the carrier paid for fuel. The fuel price spread (that is, the fuel surcharge levied by carriers as compared to the carriers' true cost for the fuel) is a major flaw that financially harms shippers. In short, in the event a carrier's actual fuel costs are higher at the time a shipment is made, the surcharge limits the carrier's costs by assessing the shipper an additional fee in excess of the actual cost the carrier paid for the fuel.
The fuel surcharge arrangement, while not calculated in the same fashion from carrier to carrier, has been implemented industry-wide. All of the surcharge protocols follow the same basic approach: a sliding scale is compiled linking the historic cost of fuel to a multiplier. The fuel surcharge is, quite literally, wholly disconnected from the actual price a carrier pays for the fuel required to complete any given shipment. It is simply a charge based upon the national average, full retail, at-the-pump cost for fuel during some pre-set time period preceding the date when the shipment is made. As a result, the fuel surcharge system produces both a cost inflation to shippers (because carriers generally do not pay full retail prices for fuel) and a time distortion (because the surcharge is based on historic average fuel costs, rather than contemporaneous fuel costs at the time the shipment is made). In practice, the amount of fuel required to complete any given movement is computed using the distance in miles between the origin and the destination, multiplied by an agreed upon miles-per-gallon for the vehicle(s) used to transport the freight. For example, in calculating the surcharge for diesel fuel, DHL (a domestic and international carrier) currently utilizes an indexed fuel surcharge based upon the fuel prices published by the U.S. Department of Energy. DHL's diesel fuel surcharge calculation is based upon the spot price for diesel fuel.
For jet fuel, however, DHL uses a different calculation to determine the “appropriate” fuel surcharge. DHL's air shipment fuel surcharge is linked to the monthly rounded average of the U.S. Gulf Coast (USGC) price for a gallon of kerosene-type jet fuel, as published by the U.S. Department of Energy. DHL currently applies the monthly rounded average from the period two months prior to calculate the applicable fuel surcharge percentage. For example, the March 2006 fuel surcharge percentage as calculated by DHL is based on the USGC monthly rounded average from January 2006.
In contrast, UPS (another domestic and international common carrier) uses an index-based surcharge for diesel fuel. UPS's surcharge scale is adjusted monthly. In the current arrangement, changes to the surcharge schedule are effective the first Monday of each month and posted approximately two weeks prior to the effective date. UPS calculates its fuel surcharge based on the National U.S. Average On-Highway Diesel Fuel Prices reported by the U.S. Department of Energy for the month that is two months prior to the adjustment. (See FIG. 1, which is a graph depicting the recent history of this fuel price index.) Thus, for example the surcharge for March 2006 is based on the January 2006 National U.S. Average On-Highway Diesel Fuel Price. In UPS' current schedule (March 2006), the fuel surcharge for diesel ranges from 0% for diesel costing less than $1.50 per gallon, to 5.25% for diesel costing from $3.02 to $3.10 per gallon.
UPS uses an analogous schedule for air freight, the air freight surcharge schedule being linked the USGC price for kerosene-type jet fuel. In UPS' current schedule (March 2006), the fuel surcharge for jet fuel ranges from 0% for jet fuel costing less than $0.66 per gallon, to 12.5% for jet fuel costing more than $1.62 per gallon.
A host of other methods of calculating the surcharge are known. For example, Schneider National (Green Bay, Wis.; currently the largest truckload carrier in North America) bases its surcharge on the Average On-Highway Diesel Prices, adjusted weekly. Thus, for the first week in March 2006, Schneider's fuel surcharge was based on the then-average on-highway price for diesel, $2.545 per gallon. Using the then-standard base cost for fuel ($1.20 per gallon, the cost factored into the charge for the movement itself) yields a differential of $1.345 per gallon in the first week of March 2006. This value is then divided by 5 mpg (the estimated average mileage of Schneider's trucks) to arrive at a surcharge of $0.269/mile. Thus, for a shipment of 1,500 miles, taking place in early March 2006, Schneider National would have levied a fuel surcharge of $403.50.
Literally all US common carriers reserve the right to change their fuel surcharge percentages and thresholds without prior notice. The result is that the fuel costs paid by shippers are not controlled by the shippers. Instead, fuel costs are set by historical rates and the surcharge percentages and price thresholds established (unilaterally) by carriers. As matters presently stand, shippers (for whose benefit the fuel is purchased and consumed) have no control over the cost at which that fuel is purchased. Likewise, shippers have no control over where and when that fuel is purchased. Shippers are therefore paying more than they should to move their goods to market.
Like many businesses, common carriers and shippers alike, are increasing using the internet and other network arrangements, to wring greater efficiencies from their operations. The exponential growth of the internet in the late 1990's, and the continued growth in commerce transacted over the internet, has thus witnessed a corresponding rise in the number of patents addressing methods for conducting commerce via a computer interface. Many of these patents touch on methods for managing fuel costs or for hedging the future cost of fuel (and other commodities). For example, U.S. Pat. Nos. 6,885,996; 6,375,539; and 6,332,128, all to G. R. Nicholson, describe a process for granting price-per-unit discounts on fuel costs. The fuel price discount is linked to the buyer purchasing other, cross-marketed items from the same vendor or from a different vendor.
U.S. Pat. No. 6,965,872, to Grdina, describes a subscription-based service wherein a consumer can purchase fuel in advance, at an agreed upon price, and the seller must deliver the fuel at the agreed upon price. In essence, the system is a debit card arrangement for hedging the purchase price of fuel.
U.S. Pat. No. 6,249,772, to Walker et al., and assigned to Walker Digital, LLC, describes the process behind the “name-your-price” web auctioneer Priceline.com. In this pricing protocol, there is a middleman (the “central controller” in the terms used by the patent) who links buyers and sellers in a double-blind fashion. The buyer is unaware of the seller's asking price, and the seller is unaware of the buyer's offering price. The asking price and the offering price are matched by the “central controller.” If the buyer's offered price is higher than the seller's asking price, the sale is consummated, and the difference is pocketed as revenue by the “central controller,” i.e., Priceline. But if the buyer's offered price is too low, the sale is not consummated. In either instance, the buyer is never informed of the seller's actual asking price, and vice-versa. The “central controller” makes the decision on whether to make the sale or not, without transmitting the asking price to the buyer, or transmitting the offered price to the seller.
There are a host of other internet commerce selling protocols described in the recent U.S. patents. To get a flavor of the overall increase in internet-based commerce, see, for example, U.S. Pat. Nos. 6,999,949; 6,970,837; 6,901,376; 6,868,394; 6,868,393; 6,839,683; 6,754,636; 6,745,190; 6,587,827; 6,016,504; 5,966,697; and 5,970,474.